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Govt Philanthropy Group Opposes Changes to Ancillary Funds

The Not for Profit members of a group set up to advise the Prime Minister on issues relating to philanthropy and giving have opposed a controversial Treasury recommendation to change the current distribution rates for Ancillary Funds.

The Not for Profit members of a group set up to advise the Prime Minister on issues relating to philanthropy and giving have opposed a controversial Treasury recommendation to change the current distribution rates for Ancillary Funds.

The non-government members of the Prime Minister’s Community Business Partnership
have made a submission to the Commonwealth’s Treasury amendments to the Private Ancillary Fund Guidelines 2009 and the Public Ancillary Fund Guidelines 2011.

Convenor of the Partnerships Innovation and Culture working group, Alexandra Gartmann, said the group was in favour of recommendations around the reduction in red tape and barriers to giving and volunteerism, and were broadly supportive of the proposed amendments to the guidelines.

“Our submission does not, however, recommend a change to the current distribution rates for Ancillary Funds,” Gartmann said.

Treasury has recommended reducing the minimum annual distribution rate of Public and Private Ancillary Funds.

“The partnership does not believe there is a strong case for changing the currently accepted rate of 5 per cent for PAFs and 4 per cent for PuAFs,” the submission said.

“Data provided to the Partnership by the Australian Taxation Office shows that 56 per cent of PuAFs and 46 per cent of PAFs distribute above the minimum distribution rate. Administration costs for PuAFs are 4.7 per cent of the fund’s net assets, with PAF administration costs at 1 per cent of the fund’s net assets.”

It said the current guidelines were simple and easy to understand and are broadly accepted by both the AF providers and the charitable sector that receives the funds.

“The recommended changes introduce a level of complexity and uncertainty that is not warranted at this stage. The partnership believes there is a case for making the distribution rate the same for PuAFs and PAFs at 5 per cent but it should be noted that there are many differing strategies for disbursements of funds and the average Ancillary Funds distributes in excess of the minimum amount already.”

Earlier this year the Turnbull Government was warned against changing the minimum annual distribution required by philanthropic funds.

The Community Council for Australia (CCA) wrote to Assistant Treasurer Kelly O’Dwyer calling on the government to back away from a proposal to change the minimum annual distribution percentage for PAFs and PuAFS.

The changes would mean that ancillary funds could distribute the average of the Reserve Bank of Australia’s target for the cash rate.

But the CCA said this could “weaken the need to focus on this primary charitable purpose and allow PAFs and PuAFs to be driven by their capacity to gain a return on their investments seems to be giving almost equal importance to the purpose of making a profit on investments”.

“Whether PAFs and PuAFs generate a substantial or minimal profit in any particular period should not be the driver of their purpose,” the CCA said.

“Whether PAFs and PuAFs can wear the fluctuations of particular investment markets and maintain their investment funds at a set level over time is not the key factor in whether or not the fund delivers a benefit to the community.”

The Prime Minister’s Community Business Partnership, originally set up by the former Howard government and reformed by the former Abbott government, was appointed to advise the Federal Government about practical strategies to foster a culture of philanthropic giving, volunteering and investment.

The non-government member submission to Treasury also included some additional suggestions related to portability for Private Ancillary Funds – removing duplications in reporting to the Australian Charities and Not-for-profits Commission and the Australian Taxation Office, updating investment strategy rules, encouraging the inclusion of social impact investing structures and program related investments in the guidelines, and loan guarantees over borrowings of Deductible Gift Recipients.

“We highlighted the need for broader legislative changes to the Income Tax Assessment Act 1997, to enable Ancillary Funds to distribute to other Ancillary Funds. This will enable the pooling of resources to meet a large need from a community or charity, for example if a regional disaster arises,” the submission said.

“The Partnership is also concerned that the proposed change to Schedule 2:24:50 may have the unintended consequence of reducing portability by preventing a PuAF sub fund from being transferred to PAF.

“Many people commence their philanthropic journey by establishing a sub fund of a PuAf and as they become more committed and involved and the contributions to the fund grow they have a corpus that is more suitable to be managed as a PAF. The Partnership would be keen to see this pathway encouraged and portability made as simple as possible.

“Allowing PuAFs to accept distributions from other Ancillary Funds is also critical to the proper functioning of portability. This is referenced above with the need for legislative change to allow PAFs to donate to Item 2 DGR Community Foundations and other PuAFs.”

The submission said the group hoped that more work would be done in this area as a matter of urgency.

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